All those worrying about whether current share prices are too high can take heart: the market price-earning (P/E) ratio based on the trailing 12 months' earnings was only marginally higher at 10.68 on August 29, 2003, than 9.86 on August 29, 2002.

This means the current stock market rally is not quite a bubble -- the higher valuations only reflect the higher earnings per share. Share prices have shot up because corporate earnings are up.

The market has discounted the trailing 12 month's 49 per cent earning growth by posting a 50 per cent rise in market capitalisation in the past year.

The current P/E ratio is based on the net profits earned by the corporate sector in the trailing 12 months ended June 2003.

So also, the P/E of August 2002 has been compiled on the basis of the net profits earned during the 12 months ended June 2002.

Nevertheless, the P/E ratio of the S&P CNX Nifty and Sensex scrips is marginally up in the past year. The P/E of the Nifty basket increased from 12.50 a year ago to 13.86 now. The Sensex P/E moved up from 13.12 to 14.11.

This only reflects the fact that the Nifty market capitalisation increased 38 per cent on the back of a 35 per cent increase in the net profit of Nifty stocks in the last 12 months. Similarly, the market capitalisation of Sensex stocks rose 36.5 per cent on a 27 per cent rise in the net profits of Sensex stocks.

The three sectors driving the market in the recent period--refineries, banking and steel--have marginally discounted their trailing 12 months' earnings with P/Es of refinery firms unchanged at 7.67, steel at 17.67 and banking, slightly higher from 5.11 a year ago to 6.51 now.

But technology stocks are yet to participate in the rally despite a 10 per cent rise in the trailing 12 months' earnings. The P/E of technology stocks is down from 22.31 a year ago to 21.24 now.

Steel firms maintained their P/E at the same level of 17.67 a year ago with Tata Steel available at a P/E of 7.63 compared with a year-ago P/E of 17.70.

Major improvements in P/E ratios were seen in the pharmaceutical sector whose P/E is up from 15.24 to 18.32, in aluminium from 11.46 to 16.30, in automobile ancillaries from 8.86 to 12.06, in cement from 14.32 to 17.72, in diversified companies from 9.82 to 12.64 and in the pesticides manufacturing sector from 8.76 to 16.48.

A major change in P/E multiples among Nifty stocks is seen in Hindalco (P/E up from 7.66 to 19.21), Dr Reddy's Laboratories (11.19 to 20.25) ACC (17.28 to 25.05) and ABB (15.88 to 22.98).

However, HPCL, BPCL, Ranbaxy Labs, Shipping Corporation, Tata Steel and few other Nifty stocks are trading below their P/E ratios of a year ago.